Every business requires considerable amounts of funding from time to time to meet its diverse business needs. Businesses go for loans to get funds in order to cater to these needs. Traditionally, business owners used to get credit against their personal assets or credit rating, which was a huge deal of insecurity for them in case their business failed. However, corporate credit concepts have come as a silver lining in the clouds for companies.
Corporate credit is an unsecured loan the financial institutions grant after verifying a business’ status. Owner assets and credits though are not at risk here. However, the financiers do verify their personal credit record to establish their credibility. Now, what if you have a bad personal credit? The answer is, you can still get the loan though you should strive to keep your business status compelling. The ensuing discussion explores the ways to strengthen your chances of securing business credit if you have a bad personal credit.
– Business entity. Your business should have its own legal existence and identity, independent of its owner. Therefore, register your company as an LLC or a corporation to build its own reliability. The proprietorship companies and partnership firms, however, face disadvantage on this front, as owner’s credibility is business’ credibility. As a result, the proprietors have to stake their personal assets to secure business loans. In addition, an owner’s bad personal credit is a big disqualification in these cases, while it has reduced impact if the organization has larger spread as is the case with LLC or corporations. Therefore, your organization’s LLC or corporation status leverages your chances of getting business loans despite bad personal credit.
– Business peripherals. A physical address, other than the P.O. Box, and a business telephone line, add much towards the integrity of your business. They reflect that it exists and is reachable.
– Other factors. Have your business operating license, good bank rating, Dunn and Bradstreet number or Duns number, around five trade references for paydex score, all in place.
– Trade credit. Trade credit is one category where you can avail business credit for a specific purpose, material purchases, even if you have low personal credit scores. However, you can use trade credits at the issuer’s specified centers only. Therefore, trade credits definitely lacks the flexibility of a cash credit and better suits the companies not requiring working capital. It is not very useful for most of the businesses with cash requirements of varying nature.
– Personal credit. It is important to understand that being an LLC or corporation does not mean that your bad credit will not have an adverse impact on your corporate credit at all. The financiers do check the owners’ social security number (SSN), and credit reports, prior to granting business credit. Mostly banks consider the applications of the owners with a credit score of 640 and above. Therefore, if your credit score is low, then without delay, it is best to start building your personal credit along with the business credit. In fact, prioritize this work.
All said and done, avoid bad credit at all costs as it makes it difficult to obtain cash credit from a bank. But even if you have bad personal credit you can still build good business credit.